Umbrella Insurance

Lawsuits happen all the time. Find out what you can do now to better protect yourself.

What you'll learn in this paper:

  • What is an umbrella
  • How you can easily be the target of a lawsuit
  • Why an umbrella is not expensive
  • How umbrella insurance works
  • Things to be aware of regarding umbrella insurance
  • How umbrella insurance works
  • How much coverage do you need?
  • How much does umbrella insurance cost

What is umbrella insurance?

Umbrella insurance is a liability policy that can protect your assets and future income by providing additional coverage over your primary insurance policies (home insurance, car insurance, boat insurance, etc.)

Your home and auto insurance can be for a rainy day in case sued, while an umbrella is for the storm.

How you can easily be the target of a lawsuit:

Do you think that you would never be sued? How often do you hear about a lawsuit being filed against someone for something completely crazy? The courts are over-run with frivolous law suits that all have to be defended.

Please be aware though that not all law suits are frivolous.

In today's busy life, we would all like to think that we are good drivers and always in control, but this is simply not true. Distractions are everywhere from cell phones, car radios, fussy children, barking dogs. Pile these distractions on top of poor weather conditions and it is impossible to be a perfect driver all the time.

That said, say you receive a call while driving and accidentally take your eyes off the road to answer it. You look up only to see a line of red lights ahead of you with the back of an SUV quickly approaching. You slam on the breaks only to skid right into them. The car has a mother and three small children in it. If your car insurance has liability limits of $100,000 per person and $300,000 per accident, which are common limits, would this be enough? It is impossible to say, but here is what you need to understand:

The $100,000/$300,000 means that your car insurance would pay up to $100,000 per person or $300,000 per accident for the bodily injury, loss of income and pain and suffering. What if the mother was a working mother and could not work for an extended period of time? What if she could never go back to her work? What if there are life-long injuries to a child? The $100,000 limit would most likely not be enough, so then what?

If you are hit with a judgment of $200,000 for just the mother's injuries, you would be paying the additional $100,000 yourself. You may also get stuck with paying your own legal fees as well as the other parties.

If you don't have the money available to pay the judgment, the court may demand the liquidation of your other assets, including your home. If there is still not enough money or you do not have a home, the court can order you to pay a percentage of your future earnings, called wage garnishment.

Though this example may seem extreme, it does happen. Do you really want to hand over your home, savings and future earnings to someone you injure in a car accident.

Why an umbrella is not expensive?

Umbrella insurance is designed for extreme situations, which fortunately do not happen with any regularity. Because it is designed for those rare rainy days, umbrella insurance is cheap. It is also versatile. Umbrella insurance provides additional liability coverage not only for your auto policy, but also your homeowners or renters policy.

It can also provide additional liability coverage for your "toys" such as boats, motor home, motorcycles, snowmobiles, or ATVs,

Things to be aware of regarding umbrella insurance

Please be aware that a personal umbrella insurance policy does not cover everything. If for example, you were sued because of something you received a fee for; there would most likely not be coverage under your personal umbrella policy. Another example would be if you were sued and the court assessed punitive damages against you, those damages won't be paid by your umbrella insurance.

What are punitive damages? They are damages awarded to someone in order to punish the person being sued. Punitive damages are awarded for outrageous, totally reckless conduct -- at least what a judge or jury perceives to be outrageous, totally reckless conduct.

You should also be aware that an umbrella policy requires that all property that it extends over, must have its own liability coverage of a certain limit. Typically this is $250,000/$500,000 for any owned vehicles and at least $300,000 on your home. The cost for increasing your underlying policies to these limits is fairly minimal.

You should also know that driving history and any prior liability claims are considered by each company when writing an umbrella policy. If there is a poor driving history, you may have to wait until the violations age-off before you can qualify for one.

How umbrella insurance works

The umbrella insurance actually "sits" on top of your auto, homeowners or renters, and other personal policies with liability coverage. For example, if you have a $250,000 per-person liability limit on your car insurance and your teen driver causes an accident where the driver of the other car sustains $400,000 in bodily injury and loss of income, the coverage would break out as follows:

Your auto policy will pay the first $250,000, and your umbrella will kick in the remaining $150,000.

Because umbrellas provide coverage over the top of the auto, homeowners or renters liability limits, most insurance companies require you to have your auto and homeowners policies with these companies as well. That's not typically a problem because most insurers offer multi-policy discounts which reduce your overall insurance costs as well as ensuring there are no coverage gaps.

HPM Insurance also represents insurers that can write a "stand-alone" umbrella in those cases where you need to place your auto and home coverage with different insurance carriers.

How much coverage do you need?

Most companies offer umbrella policies between $1 and $5 million, with some insurers offering up to $10 million.

How much you need is really a personal decision, but you will want to consider your income and all assets. Think about what you have now, but also where you will be in a few years.

How much does umbrella insurance cost?

Prices do vary by company but typically an umbrella policy with $1 million limits is approximately $200 per year, depending on the number of cars, homes, "toys" and young drivers in the household. If you need more than $1 million limit, you can usually buy each extra $1 million of coverage for $100 to $200.

Think about this. For just a couple hundred dollars, you can not only have an additional $1 million in liability coverage plus defense fees coverage, but also peace-of-mind. How will you feel if you don't act now and something happens where you need the umbrella coverage?

Our risk managers at HPM Insurance will be happy to assist you in reviewing your options and design a coverage plan designed just for you, your needs and budget. Contact us today to discuss this very important coverage.